As previously reported in the PK Law Newsletter, tax planning for the end of 2015 was hampered by the expiration of a number of “temporary” tax provisions routinely extended for a one or two year period by Congress. Congress and the President have now reached agreement on the “extenders”, making many of them permanent. The agreed-upon legislation includes tax provisions other than those dealing with the “extenders”, as well as an appropriations package that will avert a government closure. The tax provisions are contained in the “Protecting Americans from Tax Hikes (PATH) Act of 2015” (the Act), which, in turn, is part of H.R. 2029 (in Division “Q”), the “Consolidated Appropriations Act Of 2016”. The Appropriations Act, which is over 800 pages long, was signed by the President on December 18th.
PK Law highlights some of the PATH provisions below:
Tax Administration Provisions:
As relates to the Internal Revenue Service (“IRS”):
- The IRS Commissioner must ensure that IRS employees are familiar with and act in accordance with the taxpayer bill of rights.
- IRS employees are prohibited from using personal email accounts for official business (codifying IRS current policy).
- In the case of an alleged violation of Internal Revenue Code (“Code”) sections 7213-7214, the IRS may disclose to the complainant whether an investigation has been initiated, is open or is closed.
- The IRS must create procedures under which a Code Sec. 501(c) organization facing an adverse determination may request administrative appeal to the IRS’ Office of Appeals.
- The IRS is to streamline the recognition process for organizations seeking tax exemption under Code Sec. 501(c)(4) by use of a simple one-page notice of registration with the IRS within 60 days of the organization’s formation.
- PATH allows Code Sec. 501(c)(4) organizations and other exempt organizations to seek review in Federal court of any revocation of exempt status by IRS.
- The Bill provides for the termination of employment for IRS employees for taking official actions for political purposes.
- It also provides that the gift tax doesn’t apply to contributions to certain tax exempt organizations such as nonprofit civic organizations operated exclusively for social welfare and local employees’ associations that are exempt under Code Sec. 501(c)(4); labor, agricultural or horticultural organizations that are exempt under Code Sec. 501(c)(5); and chambers of commerce, business leagues, real estate boards, boards of trade or professional football leagues not organized for profit or private benefit that are exempt under Code Sec. 501(c)(6).
- PATH requires employers to include an “identifying number” for each employee, rather than an employee’s full SSN, on Form W-2 (in essence, providing the IRS with authority to direct employers to use “truncated” SSNs on Forms W-2).
- The Act allows enrolled agents approved by IRS to use the designation “enrolled agent,” “EA,” or “E.A.”.
As relates to the United States Tax Court (the “Court”):
- PATH allows a taxpayer to seek review by the Court of a claim for interest abatement when the IRS has failed to issue a final determination.
- The law allows the Court to consider small tax cases to include the review of IRS decisions not to abate interest, if the amount of interest for which abatement is sought doesn’t exceed $50,000.
- PATH clarifies that Court decisions in cases involving spousal relief and collection cases are appealable to the U.S. Court of Appeals for the circuit in which an individual’s legal residence is located or in which a business’ principal place of business or principal office of agency is located.
- PATH suspends the statute of limitations in cases involving spousal relief or collections when a bankruptcy petition has been filed and a taxpayer is prohibited from filing a petition.
- The law requires the Court to conduct its proceedings in accordance with the Federal Rules of Evidence.
- PATH authorizes the Court to establish procedures for the filing of complaints with respect to the conduct of any judge of the Court or special trial judge and for the investigation and resolution of these complaints.
- The law extends to the Court the same general management, administrative, and expenditure authorities that are available to Article III courts and the Court of Appeals for Veterans Claims.
- PATH clarifies that the Court is not an agency of, and is independent of, the Executive Branch.
Energy Provisions of PATH:
- It retroactively extends the nonbusiness energy property credit for two years, to apply to property placed in service after Dec. 31, 2014, and before Jan. 1, 2017.
- PATH extends the credit for vehicles that have two wheels (i.e., electric motorcycles) acquired after Dec. 31, 2014, and before Jan. 1, 2017, but the credit for electric three-wheeled vehicles isn’t extended.
- The law retroactively extends the Energy Efficient Commercial Building Property Deduction for two years for improvements that are energy efficient for lighting, hvac and hot water systems, for property placed in service before Jan. 1, 2017.
Depreciation and Expensing:
- As to the decision to depreciate or expense certain items by certain taxpayers, the Act retroactively extends and makes permanent the $500,000 expensing limitation and $2 million “phase-out” amounts available under prior law and both are indexed for inflation. The special rules that allow expensing for computer software is also permanently extended. The ability to revoke a Code Sec. 179 election without IRS consent is made permanent.
- For tax years beginning before 2016, qualified real property is eligible to be expensed. No portion of the disallowed expensing could be carried to a tax year beginning after 2015. For tax years beginning after Dec. 31, 2015, expensing of qualified real property is made permanent without a carryover limitation, and the $250,000 expensing limitation with respect to qualifying real property is eliminated. The carryover limitation for qualifying real property is removed.
- For property placed in service after Dec. 31, 2015, the Act provides that HVAC units are treated as eligible for expensing.
- The Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class.
- The Act retroactively extends 50% first-year bonus depreciation for two years so that it applies to qualified property acquired and placed in service before Jan. 1, 2017 (before Jan. 1, 2018 for certain longer-lived and transportation property).
- For those vehicles placed in service after Dec. 31, 2015 and before Jan. 1, 2018: The Act provides that the Code Sec. 280F limitation for a passenger auto that is “qualified property” is increased by $8,000. For an auto placed in service in 2018, the Code Sec. 280F limitation is increased by $6,400. For an auto placed in service in 2019, the Code Sec. 280F limitation is increased by $4,800.
- The option to forego “Bonus Depreciation” and claim AMT credits Instead Is extended.
Provisions not related to “extenders”:
- For amounts received in tax years beginning after date of enactment, the Act exempts from gross income any payments from certain work-learning-service programs that are operated by a work college (as defined in section 448(e) of the Higher Education Act of 1965).
- For tax years that begin after Dec. 31, 2014, the Act expands the definition of qualified higher education expenses for which tax-preferred distributions from 529 accounts are eligible to include the 2009/2010 computer equipment and technology rule.
- For distributions made after Dec. 31, 2014, the Act modifies 529-account rules to treat any distribution from a 529 account as coming only from that account, even if the individual making the distribution operates more than one account.
- And, the Act treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re-contributed to a 529 account within 60 days. This provision is effective for refunds after 2014, or in the case of refunds after 2014 and before the date of enactment, for refunds re-contributed not later than 60 days after date of enactment.
- For tax years beginning after Dec. 31, 2014, the Act allows ABLE accounts to be established in any State thereby allowing ABLE individuals to tailor their program to their needs.
- For contributions after the date of enactment, the Act allows a taxpayer to roll over amounts from an employer-sponsored retirement plan to a SIMPLE IRA, if the plan has existed for at least two years.
- The Act requires forms W-2, W-3, and returns to report non-employee compensation (e.g., Form 1099-MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. This provision is effective for returns and statements relating to calendar years after the date of enactment (e.g., filed in 2017). (Act Sec. 201(d)(1))
- The Act establishes a safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee.
- The Act provides for a two-year moratorium on the 2.3% excise tax imposed on the sale of medical devices so that the tax will not apply to sales during calendar years 2016 and 2017.
- Effective for the termination of trusts after the date of enactment, the Act clarifies the valuation method for the early termination of certain charitable remainder unitrusts. In the case of the early termination of a NICRUT or NIMCRUT, the remainder interest is valued using rules similar to the rules for valuing the remainder interest of a charitable remainder trust when determining the amount of the grantor’s charitable contribution deduction. In other words, the remainder interest is computed on the basis that an amount equal to 5% of the net fair market value of the trust assets (or a greater amount, if required under the terms of the trust instrument) is to be distributed each year, with any net income limit being disregarded.
This information is provided for general information only. None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.